Few markets have experienced changes in the way that China has over the past few decades.

Just 35 years ago, more than four in five Chinese were living in the countryside, typically tending small, family-sized plots with animals and crops. Now around half of the population live in city apartments, surrounded by conveniences that they could have only dreamt of a generation ago, and earning over three times what they would if they still lived rurally. Since 1990, China’s average incomes have grown more than 10-fold, and those extra earnings usually only need to support one child, unlike the large families a few decades earlier.

China’s social changes are almost matched by its market transformation. There were no foreign FMCG brands in China until 1979 when Coca Cola launched in the Middle Kingdom, although it was only allowed to sell to tourists. Nowadays, China has truly become internationalised with products from Italy’s Moleskine stationary, to New Zealand apples, to Belgian beer all vying for China’s lucrative consumers’ wallets. More than 500 new products launch every day on average in China.

How Chinese learn about products and services has also transformed. Until recently, propaganda messages made up the lion’s share of marketing in China. Most consumers learnt about things through the traditional state-run media channels such as radio, newspapers and later, television. Now the average urban Chinese consumer is bombarded by advertising messages across a wide range of mediums, unrivalled in other markets.

China’s 668 million Internet users have become the most rampant users of social media and ecommerce globally, using online channels more than any other medium for research before and after buying things. In addition, over 100 million Chinese travel and study abroad each year, and together with the networks they influence, have created a massive consumer population that is more aware, astute and internationally-minded than ever before.

Chinese Consumers

4 Strategies For Reaching The Chinese Consumer: As consumerism becomes more entrenched in China, companies will have to 1) segment more and more precisely; 2) extend modern trade channels and distribution networks to reach consumers outside the biggest cities; 3) communicate benefits of products that are unfamiliar to consumers; and 4) develop the products and services that are underpinning increases in consumer spending, and which remain relatively scarce in China.

Italy’s Luxury Firms Set Their Sights On China: On the back of a 44.7% increase in net income for the first half of 2015, high end notebook maker Moleskine will open most of its new stores in China in the second semester, a market it describes as “very interesting”.

Food & Beverage

What’s Going Wrong With Chinese Juice?: After accounting for 61% of global juice volume growth between 2009-2014, the volume of juice sales declined last year, with value only slightly growing. A few big safety scandals didn’t help. There has also been an overall shift to healthier beverage options with better ingredients such as fortified/functional juices and reduced sugar juice.

Chinese Tourists

Ctrip Goes On A Round The World Trip: China’s largest online travel agent faces challenges in expanding globally, in addition to more aggressive domestic competitors backed by the big boys such as Tencent and Baidu. 53% of Chinese travelling internationally book on websites or over apps.

Auto

Chinese Consumers More Upbeat On Buying Cars: Despite the slowdown of car sales in China, 20.7% of respondents in an MNI Indicator survey said they were planning to buy a car in the next 12 months – the highest rate since the series began in March 2012.

Luxury

Luxury Consumer Price Index Falls For First Time In Eight Years: Price declines in luxury properties, overseas trips and products drove the overall luxury price index down 1.8% this year according to Hurun. Yachts and private jets witnessed the largest price drops of 10.5%, as a result of foreign exchange differences.

The impact of the spectacular rise and fall of China’s stocks is anyone’s guess. It would appear that China is imploding if you read some news reports – stories of a weaking China attracts readers in some countries. Discuss it with Chinese consumers buying food for their kids in high end supermarkets, and they will shrug it off, unphased; China has made it through bigger economic challenges.

The rate of growth across many categories is slowing in China, but that was happening before the market meltdown. We expect Chinese consumers, particularly those born post-80s and 90s, will carry on in the consumer groove. Consumption will continue increasing in areas such as premium food and beverage, tourism and experiences, health and wellbeing, affordable and some niche fashion, overseas investments and anything to do with the precious only child – food, clothing and education – just look at the 50% growth that Lego has experienced in China over the past two years, despite counterfeits costing a quarter of the price.

China’s affluent and middle class base will continue to grow -an extra million USD millionaires came on board in China last year, despite the reports of doom and gloom. One loser will be state media who have been cheerleading the stock market, further eroding trust in traditional media and driving even more consumers to objective digital channels. Go to Page 2 to see this week’s China news and highlights.

In a country where more than 500 new products launch every day, celebrities can help your brand get noticed in China. They can also give your products credibility, when many other goods go untrusted.

Chinese have long looked to the voice of a few to reinforce their decisions. A little over a generation ago, framed portraits of Chairman Mao hung in many homes where residents studied the leader’s quotations in their Little Red Book. Nowadays, residents look to video downloads and social media accounts of their idols on Xiaomi smartphones.

For products without a huge budget to attract A-list celebrity associations, all is not lost. Chinese consumers are becoming more and more sophisticated and will often see through such endorsements, and smarter marketing campaigns will resonate more than those who’ve just thrown a lot of cash at a famous person.

Many of the greatest celebrity endorsement success stories happened over Weibo, spreading like wildfire to the tens of millions. But with consumers sidelining Weibo for the less-viral WeChat, the celeb multiplier-effect has lost some of its mojo.

Whether you use celebrities or not to promote your wares in China, like anything, it will be greatly enhanced with some insights-based tactics and creativity. We hope you enjoy this week’s Skinny.

Internet, Social Media & Mobile

Marketers in China Lag Behind Consumer Mobile Adoption: Mobile has completely shifted expectations with consumers now wanting to get anything they need immediately, in context. Chinese consumers average mobile expectation score of 62 is much higher the 39 in U.S. according to Forrester research.

Paying the Price For Rice: Chinese experts are claiming that local rice is just as good as the Japanese stuff, yet Chinese are prepared to pay up to sixty times as much for the safe, imported alternative. Chinese brought in 160 tons of Japanese rice in 2014, roughly triple the 2013 figure.

Disney in Fruit e-Retail First: Disney has recognised the growing importance of online food and beverage sales in China through its first partnership with an online seller of fresh produce. The company has teamed up with Fruitday to offer Chinese consumers Cinderella-themed oranges online as part of the movie promotions.

Chinese Tourists

Chinese Tourists Shun Package Trips in Favour of Independent Travel: 71% of China’s 109 million outbound tourists travelled independently in 2014, versus 65% in 2013 – an increase of 13 million tourists overall according to Qyer.com. Europe was the ‘favourite’ destination that 29% of independent travellers want to visit, with the U.S. at 10%. Women accounted for 62% of overseas travellers overall last year.

Report from IHG Unveils Scale of China Outbound Opportunity: IHG and Oxford Economics research found 62% of outbound Chinese will be leisure travellers by 2023. Over 85% will be visiting major global cities, accounting for 92.5% of spending. The study forecasts that Hong Kong and Macau will account for almost half of all spending, although they may not have factored in the recent dive in spending in the two regions.

Airlines Unveil New Deals, Services: Five new start-up and low-cost carriers entered China last year with new Boeing planes as more airlines compete for the lucrative Chinese tourist market. Delta is trying to appeal to Chinese needs, becoming the first U.S. airline letting Chinese travellers use Alipay when booking flights on their website.

Education

Xbox Boasts its Education Function: Xbox has teamed up with education provider New Oriental to develop preschool education products. The tools will help children aged 2-8 learn English in an entertaining way, as many Chinese parents place focus on education in purchases for their children. China’s preschool education market is valued at around ¥100 billion ($16.1 billion) a year.

Auto

Tesla to Localize Production in China in 3 Years: Tesla Motors plans to localize production and engineering in China as soon as 2017. The company is still committed to China after having excessive stock due to speculators and scalpers misleading the company about “extremely high” demand.

If China’s polluted air and water supply wasn’t doing enough to bring on heart disease and other illnesses, there’s a another scourge that’s stepping in – the bulge.

More than a quarter of China’s adult population, around 350 million, are now considered overweight. Those classified as obese number more than 60 million, rising 20% over the past four years in the 20-39 age group.

Busy lives in China’s cities are driving demand for convenient, processed, oily and sugary food. That, coupled with more sedentary lifestyles, is fattening up the average urban dweller. However even with consumers in cities spending twice as much on food as their rural counterparts, obesity rates are growing faster in the countryside.

Weight Management is part of a bigger subset of an increasingly health-conscious Chinese consumer spanning pharmaceuticals, health care, food and beverage, fitness, beauty, tourism and more. Three of the top-five reasons wealthy Chinese emigrate are health-related. Overall, 73% of Chinese consumers pay a premium for products that they consider healthier – something to think about with your products and positioning.

We hope you enjoy this week’s Skinny.

Chinese Consumers

Chinese Customers’ Lack of Loyalty Puts Pressure on Brands: Baby milk has the highest rate of loyalty among consumers across China’s FMCG segments. The top-5 brands in all other segments have 40%-80% of their customers as newbie’s each year. Chocolate, skincare and shampoo have the least loyal customers.

Boost in Chinese household consumption by 2020: China’s Household consumption could grow from today’s 35% of GDP to between 45% and 50% by 2020 according to Nielsen – a rise of as much as ¥26.9 trillion ($4.3 trillion) on 2012 levels. Just 13% of Chinese have ever held a loan. 38% of consumers in Tier 2 cities and 37% in Tier 3 cities said they’d buy more premium products, versus 28% in Tier 1 cities.

Customer Service ‘Leaves Shoppers Cold’: As many as 75% of Chinese consumers are not satisfied with their customer experience through multiple channels. This is contributed to by processes that aren’t integrated such as inconsistent promotional info across channels and sales staff unaware of policies and offers on social media.

Health

Chubby Little Emperors: About 350 million Chinese consumers are considered overweight or worse, with the obese count the same as the entire UK population. More than a third of Chinese die from heart disease. Meals in China now contain more than twice as much oil and meats than in the 1980s, although Chinese aren’t eating more as they get richer with the average daily calorie intake dropping around 5% since 2002, pointing to more sedentary lifestyles.

Immigration and the Chinese High Net Worth Individuals: 64% of China’s high net worth individuals have emigrated or want to do so in 2013, up from 60% in 2012 according to Hurun. Three of the top five reasons Chinese are emigrating abroad are related to health including pollution, food safety and the standard of medical care.

How Eating Broccoli Can Help Your Body Cope With Air Pollution: An international study in Jiangsu province has found a tea made from boiled broccoli sprouts helps the body to more speedily eliminate some ingested air pollutants. The potion is said to taste pretty bad, cause mild stomach complaints and possibly have a high concentration of pesticides when grown locally.

Chinese Tourists

Winning Today’s Globe Hopping and Shopping Chinese Luxury Consumers: More than two thirds of Chinese tourists are under 35 years old – 25 years younger on average than American tourist. In 2012, nearly three-quarters of the traveling Chinese consumers surveyed by McKinsey bought a luxury product while abroad in the past 12 months. 95% of Chinese visitors to Louis Vuitton shops in Paris were on organized tours.

Property & Finance

Q&A: What does London’s China currency deal actually mean?: The China Construction Bank has been appointed as a renminbi clearing house in London – the first outside of Asia. European firms will be able to receive and pay China’s currency in the western time zone, allowing easier, quicker and cheaper transactions.

Sports

Weibo Lights Up with First Kick of the World Cup: Brazilian defender Marcelo became the top-trending term on Weibo after scoring an own-goal . Within 6-hours of the opening match, there had been 1.3 billion posts related to the Football World Cup on the network. CCTV’s post sparked 220,000 discussions, of which 65% of the interactions came from users aged less than 25 years and one third by women.

That’s The Skinny for the week! We’d love to discuss how we could help with your marketing, online initiatives or research to take advantage of China’s opportunities. Just email us at info@chinaskinny.com or call us at +86 21 3221 0273 so we can learn more about your objectives and let you know how we can help.

Welcome to this week's skinny on China. China has long been as a cash society; large wads of red bills changed hands, counted with spectacularly fast fingers. But those Chinese who stash their savings under their mattresses are becoming less and less common.

China is waking up to cashless commerce, adopting bank cards and credit cards en masse. Last quarter, almost half [official] retail activity was with plastic, growing over 6%. It's been helped along by increasing trust in banks, lifestyle changes, convenience and new ways to pay. Alipay, the online payment platform, has taken ecommerce to the masses, and mobiles are an increasingly popular method to pay. Almost $2 billion worth of transactions were made on smartphones last year, growing 416% from 2010. With soaring smartphone adoption in China, some pundits are picking mobile commerce could account for half of Chinese retail by 2020.

Although cash is still a large part of many Chinese shopper's lives, the other methods are catching up as you'll read below. Make sure you've got your payment bases covered if you're selling to Chinese consumers. But before they pull out the cash, card or phone, you need to woo them first, which some of this week's other articles may assist. As always, we hope you find this week's skinny helpful and a joy to read!

Green Buying Behaviour: What Counts Most for Chinese Shoppers?: As the Global Carbon Project announced China's carbon dioxide pollution grew 10% in 2011 to 10 billion tons, Chinese consumers were most interested in the green aspects of an offer from a global survey. “Fair trade” (82%), “green/environmentally friendly” (81%) and “organic” (72%) mattered the most. Those aged 30-59 deemed green/environmentally friendly to be the most important.

Regeneration Consumer Study Finds Consumers Buying Less and Buying Better: Consumers in developing markets (China, India & Brazil) are twice as likely to feel a sense of responsibility to buy products that are good for environment. But the products should perform as well or better than what they're currently using (75% would buy if they did), shouldn't cost much more (70%), and should have believable claims (64%).

Payment & Banking

Bank Card Payment Seen Rising: Cash's dominance in China is fading. China's bank card usage is increasing, accounting for 46.3% of all retail for July-Sep – up 6.1% (usage in developed markets is around 70%). 800 million Chinese are picked to have a bank card by the end of 2012. 318 million credit cards have been issued.

Chinese Spending Promise Pushes ASX Debut : Chinese consumers are expected to spend 20 trillion RMB on plastic this year, up from 11.2 trillion in 2010. That's good news for a Sydney-listed, China-based provider of online and offline purchasing technology.

Chinese Smartphones Upset the Apple Cart: Chinese brands have taken over half of China's smartphone market this year, and they'll continue to take more of the world's largest market according to Gartner.

Automobiles

Selling Mercedes-Benz in China: Mercedes' placement as a 'youth' brand is paying off in China. Association with fashion, culture, arts and high profile sporting events has seen sales grow 77% in 2010 and 59% in 2011.

Volkswagen Crowdsources Auto Design: VW is crowdsourcing in China, hoping Chinese will contribute to design in 'The People's Car Project'. So far 11 million Chinese have registered on their site with 160,000 designs submitted.

Welcome to this week's skinny on China. Legend has it, about 1200 years ago, a goat herder in the Ethiopian Highlands noticed his animals getting frisky after eating berries from a coffee plant. Intrigued, the herder picked some fruit and took them to a nearby holy man, who wanted nothing of it, tossing the berries into a fire. But the sweet scent of the roasting coffee soon became irresistible, and the men raked up the embers, grounded and dissolved them in hot water, creating the first cup of coffee. By the 17th century, the good drink had spread up the Nile to north Africa and across to the Arabian Peninsula, before making it’s way to Europe and then much of the world. But not to China.

China has long been a steadfast nation of tea drinkers. But over the past few years that has changed with Chinese increasingly drinking coffee. Starbucks are picking China to be the 2nd largest coffee market outside of the US in two years. That’s great for the coffee industry, but it also represents a shift in Chinese attitudes towards western lifestyles and products that were not even considered a generation ago. Below you’ll find a few articles about how coffee and cafes have been adapted to appeal to Chinese tastes as well as the usual spread of news and views on how to woo more Chinese consumers.

If you have any friends or colleagues looking to grow their coffee business, tourism revenue or exporting anything to China, please lend them a helping hand and pass this newsletter onto them. After that, grab yourself a coffee and enjoy the news…

Understanding Chinese Consumers

A Letter to China, from America: How Starbucks, KFC & McDonalds represent the first step for Chinese consumers into western products and the opportunities it brings for exporters. Some good data on American exports to China.

China’s Coffee Industry is Starting to Stir: How Coffee's big boys (& girls) Starbucks and Nestle have made big bucks in China. Getting China's tea drinkers to sip coffee has many their lessons for other industries pioneering in China.

How Luxury Brands Can Reach The Online Shopper in China: Good summary of Forrester research on online purchasing habits by Chinese consumers. An interesting outtake is that 79% of low income online consumers claim to buy some sort of luxury good on the Internet. It doesn't elaborate whether that includes fakes, however one third of online Chinese consumers are very concerned about buying fake goods online.

Luxury Goods

Chinese Shoppers Power Global Luxury Sales: Insights into the global market for luxury goods: Tourists account for 40% of luxury purchases with Chinese tourists making one-third of purchases in Europe. Overall, China accounts for 25% of the global market.

Luxury Goods to Slow as Chinese Spend Less: Carrying on from the last article, Mainland China growth on luxury goods is expected to be 18% this year – not bad until you compare it with the 30% and 35% over the past two years